OPINION : Debt restructuring in SOCs and realising value can fund free higher education
BUSINESS LIVE / 14 FEBRUARY 2018 - 13.10 / ANDILE NOMLALA
Selling some nonstrategic SOCs outright and minority stakes in strategic SOCs will have positive effects on the economy
In August, I wrote about how a sovereign wealth fund (SWF) could lead black economic transformation.
Image - iStock
I will now deal with the mechanics of creating a SWF: but not a conventional SWF, ass SWFs are usually funded by surpluses in resource-backed economies. I don’t want to term it a development fund either, as ownership and control must be balanced between the government, the private sector, labour and civil society.
I am a strong proponent of ensuring that the B-BBEE Amended Codes of Good Practice drive broad-scale economic development through the creation of new, black-owned businesses that can drive job creation and increase the size of our economy.
The mechanics I’m proposing have also been sparked by an article in City Press on February 4 titled Privatise: New Eskom Brass Tread Lightly Around the P-Word, by Dewald van Rensburg.
Van Rensburg asks how one privatises Eskom without actually privatising it. By getting state-owned entities to swap their loans to Eskom of more than R100bn for shares, he answers. He attributes this view to Eskom’s new interim CEO, Phakamani Hadebe, and acting chief financial officer Calib Cassim.
Hadebe stresses that its "just an idea" and he says "I may be totally wrong, but if there are government entities willing to take equity, I think that will be considered. I think it will be politically palatable".
The is a progressive view that should even be taken a step further: let’s sell equity stakes of 25%-49% of all state-owned companies (SOCs) to black consortiums and development finance institutions, in the cases of Eskom, SAA and Transnet.
The broad-based black consortiums must be led by professionals/entrepreneurs with the requisite skills and proven track records. They will be required to turn around those entities to make them operationally viable again. The criteria to be used to select consortiums and determine which SOCs should be sold at what equity levels would have to come from a thorough due diligence process.
Both the budget deficit and debt-to-GDP ratio is widening at an alarming rate, and other economic pressures (some of our own goals) are not giving relief to the fiscus. Increasing taxes will not help the situation either as that move will further strain consumption spending, as disposable income will shrink due to tax increases.
We cannot avoid social spending and funding the public servants wage bill adjusted to above-inflation increases. One could argue that the latter is also a form of welfare spending as the wage bill is funded by taxes.
Selling some nonstrategic SOCs outright and minority stakes in strategic SOCs will have the following effects on our economy:
• Realise value from fiscus-gulping (through bail-outs) SOCs. That move can bring about private sector expertise that can improve governance and turn around SOCs to be self-sustaining. A case in point is that of Telkom. The government will start receiving dividends, or stop the bleeding, instead of paying bailouts.
• The move will help with debt restructuring as suggested by Hadebe and could set precedents for other SOCs. And we can also unbundle some of the units in cumbersome SOCs and make them stand-alone businesses that can be capitalised separately and create more value in the economy through their independent operations.
• Selling equity stakes to black consortiums could drive economic transformation on a grand scale.
And because most of these SOCs are not operationally viable, it will take a unique set of skills to turn them around. Hence, the suggestion of skilled black professionals. There are many more success stories of skilled professionals who became entrepreneurs than there are of tender-driven economic transformation led by those with political patronage.
• The state can use cash generated from these transactions to start a sovereign wealth fund in partnership with the private sector, where the state can buy equity stakes in JSE-listed companies using the proceeds of the sale of their assets. And private sector companies can claim their hold on the SWF by discounting those shares and help fund the acquisitions at discounts of 10%-20%. Private sector companies can also earn BEE points from selling discounted equity portions.
• The dividends flow could create some form of annuity income to fund free higher education and back black entrepreneurs in their business ventures.
• The fund would be equally controlled by the private sector, government, unions and civil society.
There would be no exclusive control by the government.
With the current economic stalemate and lack of growth, we need innovative ideas that can invigorate our economy to realise growth.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER